SRA review of financial penalties for individuals and firms – Law Society response
The Solicitors Regulation Authority (SRA) is seeking views on proposals to change its approach to financial penalties.
The SRA has powers to impose financial penalties on regulated firms or individuals that do not meet professional standards.
The SRA says the proposals aim to:
- resolve cases more quickly
- reduce cost, delay and stress for all parties
- improve public protection and consistency
- provide a deterrent that would reduce future risk of repeated behaviour
The consultation explored five key issues:
- the principles that underpin its fining framework
- the types of misconduct which may not be suitable for a financial penalty
- which misconduct may be suitable for a fixed penalty and the potential benefits of introducing a fixed-penalty regime
- the appropriate level of fine to achieve a deterrent effect to maintain professional standards and how this may be calculated
- the threshold limit of fines the SRA should be allowed to impose internally before referral to the Solicitors Disciplinary Tribunal (SDT) – the SRA suggests that its internal fining limit should be increased from £2,000 to £25,000
All fines imposed by the SRA would be capable of being appealed to the Solicitors Disciplinary Tribunal (SDT) and that any fines levied would still be paid to HM Treasury.
From a principles’ perspective, we agree that any fining framework should be:
- a deterrent to firms or individuals from committing breaches under the SRA Codes of Conduct
However, we do not agree that the SRA’s sanctions guidance should be focused on different types of behaviours.
Nor do we agree that limits should be placed on the sanctions to be imposed in respect of certain types of misconduct, such as the availability or not of financial penalties.
It’s right that discrimination, sexual misconduct and non-sexual harassment within the profession should be treated with the utmost seriousness.
However, the rigid rules proposed in the consultation in relation to discrimination, harassment and sexual misconduct would fetter the sanctions available to a tribunal or court in such cases and could lead to inappropriate or unfair outcomes.
The behaviours covered under these broad and distinct categories can vary substantially and can arise in a wide range of circumstances.
It’s right that the individual circumstances of each case should be considered in making a decision about an appropriate penalty.
In our view, these types of behaviour and contexts demand that decision-makers should have the flexibility to look across the full range of possible penalties in deciding how to proceed, including imposing a financial penalty.
The regulator cannot restrict the powers of a tribunal or court.
The consultation suggests setting up a fixed penalty regime for lower-level breaches of the SRA rules or non-compliance with its more administrative requirements or failure to respond to requests.
There is insufficient data for us to fully comment on this proposal and we have concerns about the administration and costs of introducing such a regime.
We do not consider there is a sufficient evidential basis to justify the need for a new fixed-penalty regime to be introduced.
We do not support the introduction of a turnover-based assessment for firms, as turnover is not necessarily a reliable indicator of profitability.
Furthermore, we are not persuaded that the imposing large turnover-based fines would act as a deterrent as most solicitors’ endeavour to operate and conduct themselves to the high professional standards set by the SRA.
In our view, a model based exclusively on turnover will not necessarily incentivise better compliance. Instead, we believe that concern for reputation is the prime motivator of good behaviour, and that this will operate regardless of the level of any potential fine.
We do not support an increase in the SRA’s internal fining powers to £25,000. This would represent a 12-fold increase on its current maximum limit of £2,000.
We accept that an appropriate increase to the threshold is reasonable and would assist the regulator in making decisions in a greater number of straightforward cases, which is likely to speed up the process, save costs as well as reduce the stress on all parties.
However, the substantial increase proposed to the threshold would potentially include many more serious or significant cases that currently go before the SDT and where full reasons for its decisions are transparently set out in written judgments and published on the SDT website.
Our members have concerns about the SRA acting as investigator, prosecutor and judge without independent scrutiny.
The consultation closed on 11 February 2022.
The SRA will consider responses from all stakeholders before deciding on how to proceed.